Oil extended gains as fresh attacks flared in West Asia tand traders weighed a US plan to insure and escort tankers passing through the Strait of Hormuz, with traffic in the vital waterway all but halted.
Brent rose toward $82 a barrel after rallying about 12% over two days, the biggest gain since 2020, while West Texas Intermediate was near $75. President Donald Trump said on Tuesday the US International Development Finance Corporation would offer insurance to vessels to help ensure the flow of energy and other trade, providing a naval escort “if necessary.”
The US move follows signs of mounting disruption for producers in the region from the effective closure of the key trade route. Iraq — the second-biggest OPEC producer — has begun shutting the Rumaila field, the nation’s biggest, and the West Qurna 2 project, according to people familiar with the matter. When complete, the halts will stop a majority of the country’s output.
In Saudi Arabia, major oil-storage sites are filling rapidly, according to geospatial analytics company Kayrros.
The global oil market has been pitched into turmoil by the US and Israeli war against Iran, with strikes and counter-strikes spreading across the Middle East. The war has halted trade, driven producers to lock in output, and forced the closure of a major refinery and gas-export plant. Surging prices of crude, gas and petroleum products have raised the spectre of a global energy crisis.
“Naval escorts will be sitting ducks to Iranian attacks,” ING Groep NV said in a note from analysts including Warren Patterson, head of commodities strategy. “So, the US may choose to wait before escorting vessels until it gauges that Iran’s ability to attack has been degraded.”
Hostilities continued into the fifth day of the conflict on Wednesday. The Israel Defense Forces said they had begun a “broad wave of strikes” targeting Iran. Separately, US Central Command said in an update that it had destroyed 17 Iranian ships and hundreds of launchers and drones.
“Today, there’s not a single Iranian ship underway in the Arabian Gulf, Strait of Hormuz or Gulf of Oman, and we will not stop,” Admiral Brad Cooper said in a video posted on X. Vessels destroyed included the “most operational Iranian submarine, that now has a hole in its side,” Cooper said.
As the crisis drags on, oil-market metrics are flashing acute near-term tightness. Brent’s prompt spread — the difference between its two closest contracts — has widened to $3.15 a barrel in backwardation, a bullish pattern. A month ago, the gap was just 71 cents.
The Strait of Hormuz is a narrow waterway that connects the Persian Gulf to the Indian Ocean, with Iran to its north. It’s an essential conduit for the global energy trade, carrying about a fifth of the world’s oil and gas. Since the outbreak of the war last Saturday, tankers have shunned the chokepoint given the mounting risks, including threats from Tehran against vessels.
“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” Trump posted on social media, without elaborating on the insurance mechanism to be offered. The DFC generally exists to mobilise private capital for developing nations and de-risk investments.
“These are words right now, so we need to actually see how this is going to play out,” Rebecca Babin, a senior energy trader at CIBC Private Wealth Group, said on Bloomberg Television. “What do those military escorts look like? How expensive is the insurance, and do the shippers feel a degree of comfort with what they they’re being provided?”
After Trump’s comments on the escort plan, Tehran reiterated a warning to vessels in the area. The Strait of Hormuz is under wartime conditions and vessels sailing through it “could be at risk from missiles or rogue drones,” the Islamic Revolutionary Guard Corps said in a statement cited by the semi-official Fars news agency. Iran has struck more than 10 tankers with various projectiles for ignoring its warnings, it added.
The effective closure of Hormuz presents a huge challenge for oil and gas importers, including Asian economies that are heavily reliant on the flows. Some, including China, have stockpiles that will help to buffer any short-term disruptions, but a sustained conflict threatens to quickly drain those. Alternative supplies from outside of West Asia will likely be more expensive, with soaring freight rates adding to spiralling costs.
The “market won’t calm down unless it sees proof of traffic resuming toward normalcy,” said Vandana Hari, founder of analysis firm Vanda Insights.
The International Energy Agency — the Paris-based agency that coordinates global releases of oil inventories during times of disruption — convened an unscheduled meeting on Tuesday. It noted that member countries hold more than 1 billion barrels in emergency stockpiles.
Away from the Middle East, an industry report showed US crude stockpiles rose 5.7 million barrels last week. Official data on the holdings — which rose almost 16 million barrels in the prior week — are due later Wednesday.
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